EOQ Calculator
At the EOQ, ordering and holding costs are equal; ordering more or less each time raises the total.
How the EOQ calculation works
Estimate yearly demand
Units you expect to sell in a year. Use last year's sales adjusted for growth.
Price one order
What it costs to place and receive an order, regardless of size: shipping, receiving time, paperwork.
Price holding one unit for a year
Storage, insurance, spoilage and the interest on cash tied up. Add up your own yearly costs and divide by the average units in stock, or use a percentage of the unit cost: for example, 20% of a $20 unit is $4.
Apply the formula
EOQ = √(2 × 1,200 × $50 ÷ $4) = √30,000 ≈ 173 units, about 7 orders a year.
Worked example. With 1,200 units of annual demand, $50 per order and $4 to hold a unit for a year, EOQ is 173 units. That is 6.9 orders a year, costing $346.41 to order and $346.41 to hold, $692.82 in total.
EOQ FAQ
What is the EOQ formula?
EOQ = √(2DS ÷ H), where D is annual demand, S is the cost per order and H is the yearly holding cost per unit.
What is economic order quantity?
Economic order quantity (EOQ) is the order size where ordering cost and holding cost together are lowest. Ordering more ties up cash in stock; ordering less means paying order costs more often.
How do I calculate EOQ?
Multiply annual demand by the cost per order and by 2, divide by the holding cost per unit per year, then take the square root. With 1,200 units, $50 per order and $4 holding cost: 2 × 1,200 × $50 = $120,000; ÷ $4 = 30,000; √30,000 ≈ 173 units.
What happens if I order more or less than the EOQ?
Total cost rises either way. In the example above, ordering 100 units at a time costs $600 to order plus $200 to hold, $800 a year. Ordering 300 costs $200 plus $600, also $800. The EOQ of 173 costs $692.82. The cost curve is flat near the EOQ, so rounding to a case or pallet size costs little.
What are the limits of EOQ?
It assumes steady demand, a fixed price and instant delivery. Bulk discounts, seasonal sales and minimum order sizes can make a different quantity cheaper.
What is the holding cost formula?
Holding cost per unit per year = yearly storage, insurance, shrinkage and cost of capital ÷ average units in stock. Total holding cost = (order quantity ÷ 2) × holding cost per unit. Holding cost is also called carrying cost.
How do I estimate holding cost if I don't track it?
Use a percentage of the unit's purchase cost that reflects your own storage rent, insurance, losses and borrowing rate. For example, if you pick 20% and a unit costs $20, enter $4. Try a few percentages to see how much the EOQ moves.